Cash Is Still King When Teaching Kids about Money

A crisp $5 bill pressed into a birthday card. A shiny quarter under a pillow in place of a lost tooth. Change for a dollar for a 50-cent glass of fresh, icy lemonade. Money made from baby-sitting or lawn-mowing, tucked away for something special. What do they have in common? They are probably staples from most of our childhoods and represent some of our first experiences with money. But as digital life continues to take the world by storm, how do we teach children about money?

For over a century, kids have dipped a toe in financial education courtesy of some rendition of the “lemonade stand” or “birthday money.” Work, make money, and learn core concepts, including how to be a custodian of that money. Any parent who has ever used a “bribe” to get their child to do something has established the relationship between transactions and currency. But even the savviest parents sometimes find themselves at a loss when it is time to teach their children the importance of understanding how money works.

For Randi Goodman, teaching her six-year-old twins Ryan and Josie about the value of a dollar using an actual dollar bill was a no-brainer. Goodman, who works in public relations for a law firm, admits that she is not only “terrible with money,” but that she was, “raised to be terrible with money.”

Her father’s message about money essentially taught her: “Don’t pay attention and you’ll be fine,” but Goodman wanted more for the twins. “[What I learned] is the opposite of what I wanted for my kids,” she says. The remedy? Start them understanding what money is and what it does at an early age.

“From the time they were about three or four, I started making sure they understood that money has a purpose and that they need it to do, have, get, and be what they want,” says Goodman. The twins, who are on the autism spectrum, needed their early financial teachings to be shown in a very concrete and specific way, making cash and coins the perfect teaching tools.

At first, it was a simple task such as taking up the bill and payment to the register when the family was dining out, and over time, Goodman built upon it. “I was able to say this costs $4.50 and you have 3 $1 bills. Is that more or less,” she says. “And, we also have this $5 bill and that’s more so what should we do? And [I made sure] they understood the concept of getting change back. I don’t want my kids getting ripped off.”

Goodman is on the right track because lessons about money get more challenging to spell out once the actual bills and coins have left the picture, according to Ted Jenkin, CEO of financial services firm OXYGen Financial. Jenkin notes that often, when he asks families about their daily finances and expenditures, many come up blank. The culprit: a dysfunctional relationship with ‘invisible money.’

“You can’t hit what you can’t see,” he says.  In the coming 25 years, cash flow management is on track to become as important as asset management for consumers looking to reach their financial goals because saying “yes” to plastic and digital finance can be the kiss of death.

There is no doubt that technology has made electronic payment more convenient. But Jenkin notes that  digitally run companies have gotten smarter about how to take money out of consumers’ wallets. “There’s no difference between Amazon and Las Vegas,” he says. “Both are fine as long as you realize what the game is: to separate you from your wallet.”

Ordering and paying for items with a phone is also a dangerous convenience when teaching children about finances because the ease masks the transaction. “It’s easier to order pizza or coffee with a phone and pick it up, but it looks like you didn’t pay anything,” he says.

The good news, however, is that parents have roughly a 15-year span to teach their children lessons and tips to create a sound financial footing. Howard Dvorkin, chairman of Debt.com, believes a child as young as three can grasp basic concepts of money.

“They need to know about money as early as they can comprehend it,” he says, noting that one easy way to teach the importance of cash is to let kids earn, save, and spend their own money and narrate along the way. “Make them earn it; money has no value if you just give it to them. If they earned it, they don’t want to part with it as easily since they worked a whole day to earn that money.”

Honesty about your own relationship with money is also an effective teaching tool. For Goodman, this means making sure her children understand how the money in their home is earned and giving them the option to earn toward specific things they want. “I talk about work and how I get paid and if I don’t work too much, I don’t get paid,” she said. .

Her children have also begun to take the lessons they have learned and build on them. Her son has a heart murmur and recently set and achieved a goal as a fundraiser for the American Heart Association. Meanwhile, her daughter who is in Girl Scouts, set and exceeded a goal of her own during cookie season.

The bottom line: Don’t put the piggy bank on ice, fire the tooth fairy, or Venmo that birthday money just yet. While plastic and digital have their position in the world of finance, cold, hard cash is still a solid tool at the root of financial teaching for children.